IMF Completes Twelfth and Final Review Under the Extended Fund Facility Arrangement for IrelandPress Release No. 13/507
December 13, 2013
The Executive Board of the International Monetary Fund (IMF) today completed the twelfth and final review of Ireland’s performance under an economic program supported by a three-year arrangement under the Extended Fund Facility (EFF). The completion of the review enables the disbursement of an amount equivalent to SDR 0.579 billion (about €0.65 billion, or about US$0.89 billion), bringing total disbursements under the EFF to the equivalent of SDR 19.4658 billion (about €21.81 billion, or about US$29.94 billion) or the equivalent of 1,548 percent of Ireland’s IMF quota.
The arrangement for Ireland, approved on December 16, 2010 (see Press Release No. 10/496), was part of a financing package amounting to €85 billion (about US$116.68 billion), also supported by the European Financial Stabilisation Mechanism and European Financial Stability Facility, bilateral loans from Denmark, Sweden, and the United Kingdom, and Ireland’s own contributions.
This is the last review under the EFF arrangement, which will expire on December 15. Owing to steadfast policy implementation by the authorities, the EU-IMF supported program has been completed successfully. Ireland has pulled back from an exceptionally deep banking crisis, significantly improved its fiscal position, and regained its access to the international financial markets. Growth, though slower than initially projected, has exceeded the euro area average. Key policy actions have included necessary bank support, restructuring and downsizing, improvements in bank supervision and regulation, fiscal consolidation measures totaling some 8 percent of GDP and improvements in the institutional framework for fiscal policy. These and other efforts leave Ireland in a much strengthened position and a range of economic indicators suggest a recovery is emerging in the second half of 2013.
Yet important challenges remain. Public debt is projected to reach 124 percent of GDP this year, although this partly reflects Ireland’s strong cash buffer. The fiscal deficit is expected at about 7 percent of GDP, within the target of 7.5 percent of GDP, yet still high. Banks remain weighed down by low-yielding indexed mortgages and by 26.6 percent of loans being nonperforming, including some 17.4 percent of the total values of mortgages in primary residences being in arrears for over 90 days. Unemployment, though significantly below its peak of 15.1 percent in early 2012, remains unacceptably high at 12.5 percent in November, with almost 60 percent of job seekers out of work for over a year
After the expiration of the EFF arrangement, Ireland and the IMF will continue to maintain a constructive policy dialogue. In accordance with Fund policy, Post-Program Monitoring (PPM)1 will now be initiated.
Following the Executive Board’s discussion, Ms. Christine Lagarde, Managing Director and Chair, said:
“With today’s approval of the 12th review Ireland has successfully completed its EU-IMF supported program. Steadfast policy implementation by the Irish authorities has underpinned the achievement of core program objectives: stabilizing the financial sector, significantly improving the fiscal position, and regaining market access. Renewed job creation and a range of positive indicators signal an emerging recovery. As a result, Ireland is now in a much stronger position than when its program began.
“Yet Ireland still faces significant economic challenges. Unemployment is too high, public debt sustainability remains fragile, and heavy private sector debts and banks’ slow progress in resolving nonperforming loans weigh on domestic demand. Continued concerted policy implementation is therefore necessary for Ireland to recover fully from the crisis.
“Steady fiscal consolidation has been a hallmark of Ireland’s program with deficit targets again expected to be met in 2013. Budget 2014 sets out a balanced pace of adjustment in coming years, as needed to put public debt on a declining trajectory. To limit the drag on growth, revenue increases should focus on further broadening the tax base, and reforms of health, education, and social protection spending should be undertaken while protecting core public services and the most vulnerable.
“To help revive lending and sustain a recovery in demand, efforts to resolve mortgages in arrears should be intensified. The recent bank balance sheet assessment—an intensive analysis conducted by the Central Bank—found additional provisioning to be appropriate. Results should inform banking supervision and banks’ preparations for the Comprehensive Assessment in 2014, for which an ESM recapitalization backstop is desirable.
“Reducing unemployment is a central priority, requiring improved employment services and training for jobseekers, together with steps to promote credit to SMEs, where the support of European partners is welcome.
“The government’s decision not to request a successor program is welcome. Ireland’s track record within its EU-IMF supported program bodes well for its success in tackling these remaining challenges and the Fund looks forward to continued constructive engagement with the Irish authorities.”
1 The central objective of PPM is to provide for closer monitoring of the policies of members that have substantial Fund credit outstanding following the expiration of their arrangements. PPM is discussed in more detail in this factsheet.